Correlation Between Legacy Education and Two Harbors

Can any of the company-specific risk be diversified away by investing in both Legacy Education and Two Harbors at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Legacy Education and Two Harbors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Legacy Education and Two Harbors Investments, you can compare the effects of market volatilities on Legacy Education and Two Harbors and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Legacy Education with a short position of Two Harbors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legacy Education and Two Harbors.

Diversification Opportunities for Legacy Education and Two Harbors

0.51

Correlation Coefficient

Legacy Education  Two Harbors

Very weak diversification

The 3 months correlation between Legacy and Two is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Legacy Education and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investments and Legacy Education is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Legacy Education are associated (or correlated) with Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of Legacy Education i.e., Legacy Education and Two Harbors go up and down completely randomly.

Pair Corralation between Legacy Education and Two Harbors

Given the investment horizon of 90 days Legacy Education is expected to generate 8.6 times more return on investment than Two Harbors. However, Legacy Education is 8.6 times more volatile than Two Harbors Investments. It trades about 0.06 of its potential returns per unit of risk. Two Harbors Investments is currently generating about 0.03 per unit of risk. If you would invest  850.00  in Legacy Education on October 24, 2024 and sell it today you would earn a total of  23.00  from holding Legacy Education or generate 2.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Legacy Education  vs.  Two Harbors Investments

Legacy Education

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Legacy Education are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental indicators, Legacy Education showed solid returns over the last few months and may actually be approaching a breakup point.

Two Harbors Investments

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investments are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Two Harbors is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Legacy Education and Two Harbors

The main advantage of trading using opposite Legacy Education and Two Harbors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Legacy Education position performs unexpectedly, Two Harbors can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Two Harbors will offset losses from the drop in Two Harbors' long position.

The idea behind Legacy Education and Two Harbors Investments pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Money Managers module to screen money managers from public funds and ETFs managed around the world.